Corporate Bankruptcies Surge to 14-Year High Amid Economic Strains

FOTOGRIN/Shutterstock

U.S. corporate bankruptcy filings have soared to a 14-year high as U.S. businesses continue to face pressure from tighter credit conditions and softer consumer demand.

A report released on Jan. 7 by S&P Global Market Intelligence indicates that at least 694 U.S. companies filed for bankruptcy in 2024, the highest single-year tally since 2010, in the aftermath of the financial crisis of 2008–09. The number of bankruptcies even exceeded the previous post-financial crisis high of 639, logged in 2020, a year that was gripped by the COVID-19-related recession.

U.S. businesses faced sustained pressure from elevated interest rates in 2024, compounded by a quarterly record of $8.453 trillion in total debt among credit-rated nonfinancial U.S. companies, according to S&P Global Market Intelligence.

While there was some relief in September 2024, when the Federal Reserve lowered interest rates from its 20-year high and announced the start of a monetary-easing cycle, the persistence of inflationary pressures has put the central bank back on inflation watch, with it signaling a slower pace of rate cuts than previously expected.

In the Fed’s latest summary of economic projections, released in mid-December, central bank officials shifted their assessment of inflation risk from September’s “broadly balanced” to “weighted to upside.” The level of uncertainty around the inflationary outlook also moved higher, with the Fed’s updated projections prompting markets to lower their expectations for the pace of future rate cuts.

“Higher for longer is the mantra headed into 2025,“ Bankrate chief financial analyst Greg McBride told The Epoch Times in a recently emailed statement. ”The Fed’s quarterly projections indicate a common expectation of just two interest rate cuts for next year, a change of thinking from September when the median expectation was four rate cuts.”

Federal Reserve Chair Jerome Powell told a press conference on Dec. 18 that September’s inflation projections had “fallen apart,” with an uptick in inflationary data in recent months being the single biggest factor. Powell reaffirmed the Fed’s commitment to bringing inflation down to around the 2 percent mark and declined to rule out interest rate increases if the data warrant monetary tightening.

“You don’t rule things completely in or out in this world,” Powell said.

Besides the lingering impact of higher interest rates on U.S. companies, waning consumer demand and the ongoing slump in U.S. factories also contributed to the 14-year high in corporate bankruptcies. The S&P Global Market Intelligence data showed that companies in the consumer discretionary and industrials sectors led the 2024 bankruptcy filings. The two sectors combined for 196 filings, representing 28 percent of all bankruptcies for the year.

Companies in the consumer discretionary sector, which rely heavily on spending for nonessential goods and services, have been hit hard by inflation and higher interest rates, which have squeezed household budgets and reduced discretionary spending. As consumers cut back, businesses in this sector face declining revenues and rising financial strain.

Several recent reports—from Deloitte, McKinsey, and Bain & Company—all point to the same trend. Namely, while there was an uptick in consumer optimism in the final months of 2024, spending intentions remain relatively subdued, in particular when it comes to discretionary purchases.

“Despite the new tide of optimism, consumers across income levels and generations said they plan to keep their spending habits relatively subdued, particularly in discretionary and luxury categories,” the McKinsey report states. “Their reported spending intentions suggest consumers are willing to delay immediate gratification in favor of long-term financial stability.”

Deloitte found that discretionary spending intentions have increased in recent months but remain weaker than 2021 levels. Bain & Company described the American consumer as being in a “healthy spending posture” in the final weeks of 2024 but signaled a slowdown heading into 2025.

“One source of concern was the driver of December’s 2.4-point decline in the survey’s spending intentions reading, with this being primarily due to a 3.2-point drop in spending intent among upper-income earners, with incomes of $100,000 a year or more, who represent the majority of discretionary consumer spending in the U.S.,” Karen Harris, managing director of Bain & Company’s macro trends group, wrote in the report.

Altogether, the reports suggest possible headwinds ahead for U.S. corporations in the consumer discretionary sector, possibly setting up 2025 as a year in which the bankruptcy trends continue.

Similarly, the industrials sector has been significantly affected by the ongoing manufacturing slowdown, contributing to the disproportionately high number of bankruptcies. Recent data from the Federal Reserve suggest America’s factories remain mired in weakness, a view that is further bolstered by figures from research firms such as the Institute for Supply Management (ISM), which showed that the U.S. manufacturing sector finished 2024 in the grips of a prolonged slump.